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What Do We Do Now?

Those of you from my generation may recognize the title of this blog as the last line from the movie “The Candidate.” Robert Redford’s character has just won election to the U.S. Senate and ponders his future.

Supporters of the Affordable Care Act should be asking themselves the same question. They worked hard to get the bill enacted and then had to sweat out (literally in much of the nation) the Supreme Court decision. But the bill as it stands will only go so far to cure our nation’s healthcare woes. Yes it will expand coverage. And the push for Accountable Care Organizations might reintroduce some of the cost savings incentives enjoyed by HMOs. But this is legislation that relies on competitive healthcare markets yet does precious little to promote competition. There is a lot more work to be done.

I doubt that the current Congress has the stomach to consider any more healthcare legislation, but here are some recommendations for the next Congress (and for any states that want to make the ACA work for them.)

1) Limit the tax deduction for health insurance. Economists have been preaching this for decades and the justification is as valid as ever. If individuals want insurance that pays for every last dollar of every last medical service, let them buy it with after-tax dollars. Why should everyone else subsidize their profligacy? It has been said that Congress can never muster enough votes for legislation limiting the tax deduction. They said the same thing about comprehensive health reform. Get this done!

2) Require all health insurance exchanges to include at least one narrow network plan and set enrollment goals for narrow network plans. Let’s face it, some providers are more efficient than others, often lots more efficient. Efficient providers would pass on their lower costs to insurers that could guarantee them high volumes, but this requires narrow networks. But narrow networks may be a hard sell politically because the most powerful insurers and providers in most states prefer large networks. (The exception is when the powerful provider decides to offer its own insurance plan, but this introduces a host of other problems.) A federal mandate would trump political opposition at the local level.

3) Ban “Most Favored Nation” contracts between insurers and providers. Large insurers in many states secure these contracts ostensibly to guarantee low rates to their enrollees. Instead, MFNs often leads to higher rates and, more importantly, serve as a powerful barrier to entry. MFNs are one of the biggest reasons why smaller health insurers do not enter the market with low cost, narrow network plans. Providers won’t lower their rates to get into these plans because if they do so, they have to pass along the lower rates to the large insurer with the MFN. MFNs also protect powerful insurers from competition, assuring them a cost advantage over all rivals. I have seen first-hand how this has a chilling effect on innovation. Why should the dominant insurance plan in a market experiment with payment incentives, quality measurements, narrow networks and who knows what else when it can rely on its MFNs to sustain its advantage.

4) Double the funding available to the Federal Trade Commission and Department of Justice to break up powerful providers and insurers. We need a healthcare market where firms win by creating value, not by exercising power. Banning MFNs will help make insurance markets more competitive, but powerful insurers can still use their sheer size to stay ahead of their rivals. And many metropolitan areas suffer under the yoke of powerful, expensive medical providers. The antitrust agencies have the data and methods required to go to court and restore competition; a recent string of successful antitrust challenges bears this out. But there are far more powerful insurers and providers than there are resources to fight them. The amount of money required for additional antitrust enforcement is a drop in the healthcare ocean (perhaps tens of millions of dollars annually, but the return on this will be astronomical. Full disclosure – I occasionally serve as an expert witness in healthcare antitrust cases and could stand to benefit from additional enforcement activity.

5) Change the rules governing exchanges and Medicare ACOs to facilitate the entry of disease-specific options. DaVita is considering introducing an ACO for diabetes patients. One can imagine similar entries for cancer care, COPD, mental health, and so forth. I don’t know if these will deliver more value than traditional ACOs but if we can get the incentives right, the market will be the judge. Current exchange rules, with caps on experience rating, all but rule out such ventures. ACO rules were not written with such specialization in mind and need to be reexamined to be certain they neither block innovation nor facilitate favorable risk selection.

6) Develop and publicize usable health insurance quality measures. Consumers will soon be able to comparison shop for health insurance (through the exchanges) in the same way that they can comparison shop online for auto insurance. But competition can backfire when quality varies and is hard to measure. If consumers only have information about the price of insurance, there could be a race to the bottom in terms of quality. For years the National Committee on Quality Assurance has released HEDIS quality measures. But these are complex and only measure fragments of the overall quality of care. We shuld use marketing research methods to create meaningful and understandable composite quality metrics. Fund the systematic measurement of Patient Reported Outcomes in order to create disease-specific global quality scores. Full disclosure redux: I am a big fan of the Patient Reported Outcome Measurement Information Set, which was developed at Northwestern University.

A final thought: Is Obamacare safe from Mitt Romney?

Mitt Romney’s biggest line on the campaign trail is that once elected, he will repeal Obamacare. Thanks to Justice Roberts, that possibility remains on the table. But can he do it?

The conventional wisdom had been that if the Court upheld Obamacare, there was little that a President Romney could do to block it. Oh, he could be lax in enforcement (sort of like Obama’s lax enforcement of immigration laws) and block funding for some minor parts of the law. But it would take an act of Congress to overturn Obamacare and that would require at least 60 votes in the Senate. And no one thinks that 60 senators will vote to overturn.

But with a semantical sleight of hand, Justice Roberts has changed all of that. By correctly pointing out that the mandate is enforced through a tax, Roberts changes this centerpiece of Obamacare from insurance regulation to tax regulation. Under current Senate rules, tax regulation cannot be filibustered. Will this give an opening to the Republicans if they manage to wrest control of the Executive and Legislative branches? I am just asking.

David Dranove, PhD, is the Walter McNerney Distinguished Professor of Health Industry Management at Northwestern University’s Kellogg Graduate School of Management, where he is also Professor of Management and Strategy and Director of the Health Enterprise Management Program. He has published over 80 research articles and book chapters and written five books, including “The Economic Evolution of American Healthcare and Code Red.” This post first appeared at Code Red.

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Here is another new law that could be added to David’s excellent proposals in his article: – force medical providers to accept insurance reimbursement as ‘payment in full’ for non-discretionary care. The classic example is a broken leg. It must be treated at the nearest hospital. Assume that the patient has insurance, and assume that the insurer pays $5,000 for the emergency care and stabiization. Today, If the total bill from the hospital and non-network doctors is $10,000, then the patient owes $5,000. (not in Medicare or Medicaid, incidentally.) This is wrong. A broken leg cannot normally be blamed on… Read more »

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7 years ago

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Al Lewis

Dave, I don’t know if this is your first posting or not but if it is, get used to being called “jackass” and worse for making perfectable reasonable postings that might impact the income of others. Case in point: I’ve been skewered on THCB, usually by commenters hiding behind pseudonyms, and yet 2 of my THCB proposals have been read and approved of (one is about to be piloted), 1 will be debated on the NPR affiliated in DC (WAMU) in the fall, and 1 is likely to lead to some people in North Carolina Medicaid losing their jobs for… Read more »

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7 years ago

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Dr. Salk

David Dranove says: “Limit the tax deduction for health insurance . . . If individuals want insurance that pays for every last dollar of every last medical service, let them buy it with after-tax dollars. Why should everyone else subsidize their profligacy?” Leaving aside the question of whether the tax deduction is good policy, my question, Dave, is who are these “profligate” individuals? Could they be Americans who are paying ever-higher deductibles for mediocre insurance? Americans who have very little opportunity to choose who provides their care, and don’t have the background or economic wherewithal to make choices about the… Read more »

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7 years ago

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Al Lewis

I see you got a lot of comments from the perspective of various stakeholders, but when I look at policy proposals I look at it from the perspectives you do, which are total benefit to the system, but also practicality. A proposal that says 31% of every healthcare dollar should be elimnated is not practical. Your proposals, in particular the second and the third, are much more practical. Really they are about jump-starting new marketplaces. Sometimes a market needs a little kick in the pants to get started but then, as you say, market forces take over. The first one… Read more »

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7 years ago

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tomd39

I still see some missing elements in your proposals. One big one is eliminating 31% of every healthcare dollar going to administration, marketing, etc. The other is the marriage of doctor’s fees to percentile pricing and not to actual cost. As a self-pay I do not like shelling out $300 cash for an office visit, priced at $190 by the insurance company. And, is that office visit even worth $190?

Three suggestions: Actually, these are not suggestions. They are not optional. 1. Malpractive protections for providers. 2. Penalties for health plans that fail to provide payment for services rendered in a timely manner. I have a credit report. If I fail to pay my bills I go out of business. It’s that simple. Yet health plans and other businesses are free to flaunt the laws and face no penalties whatsoever that I can see. 3. Harsh penalties for law firms that engage in speculative medical litigation. 4. FEMA style Catastrophic care coverage for consumers facing serious illness. If your doctor… Read more »

The notion of buying insurance anywhere in the country that would be usable anywhere else in the country is demographically unrealistic. (Insurance bought in the Midwest would be very competitively priced until they started getting horrendously high claims from New England.) But the idea of state compacts is not a crazy idea. The reliably conservative Washington Times tossed out a story in 2011 headlined “State compacts on health care eyed as end run around Obama — Skeptics call prospects iffy” but the writer probably didn’t realize (as most people who haven’t bothered to do their homework also don’t) that ACA… Read more »

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7 years ago

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steve

I think a lot of these are good ideas. To this the GOP could add things like buying insurance across state lines, competitive bidding for Medicare Advantage, and tort reform, if they think they will help with costs. However, I dont see them doing that. I think they will concentrate on repeal. I doubt, based upon GOP history, that we see replace.

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